UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-12906
RICHARDSON ELECTRONICS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 36-2096643
(State of incorporation) (I.R.S. Employer Identification No.)
40W267 Keslinger Road, PO Box 393,LaFox, Illinois 60147
(Address of principal executive offices and zip code)
(630) 208-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
As of October 8, 1998, there were outstanding 10,827,540 shares of Common
Stock, $.05 par value, and 3,235,346 shares of Class B Common Stock, $.05 par
value, which are convertible into Common Stock on a share-for-share basis.
This Quarterly Report on Form 10-Q contains 14 pages. An exhibit index is at
page 12.
(1)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended August 31, 1998
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Income 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II - OTHER INFORMATION 12
(2)
Part 1 - Financial Information
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
August 31 May 31
1998 1998
--------- ---------
(Unaudited) (Audited)
ASSETS
-------
Current assets:
Cash and equivalents $ 9,152 $ 8,031
Receivables, less allowance of $2,438
and $2,230 59,194 63,431
Inventories 103,735 96,443
Other 10,119 9,681
--------- ---------
Total current assets 182,200 177,586
Investments 2,351 2,931
Property, plant and equipment 51,529 49,795
Less accumulated depreciation (32,097) (31,318)
--------- ---------
Property, plant and equipment, net 19,432 18,477
Other assets 13,050 10,706
--------- ---------
Total assets $ 217,033 $ 209,700
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
Current liabilities:
Accounts payable $ 18,650 $ 17,320
Accrued expenses 7,370 10,689
--------- ---------
Total current liabilities 26,020 28,009
Long-term debt, less current portion 94,179 87,427
Deferred income taxes 3,515 2,679
Stockholders' equity:
Common stock, $.05 par value; issued 11,288 at
August 31, 1998 and 11,183 at May 31, 1998 564 561
Class B common stock, convertible, $.05
par value; issued 3,236 at August 31, 1998
and 3,239 at May 31, 1997 162 162
Additional paid-in capital 81,830 80,606
Retained earnings 18,774 16,842
Foreign currency translation adjustment (8,011) (6,586)
--------- ---------
Total stockholders' equity 93,319 91,585
--------- ---------
Total liabilities and stockholders' equity $ 217,033 $ 209,700
========= =========
See notes to consolidated condensed financial statements.
(3)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
August 31
---------------------------
1998 1997
--------- --------
Net sales $ 76,038 $ 71,600
Cost of products sold 54,326 50,962
--------- ---------
Gross margin 21,712 20,638
Selling, general and
administrative expenses 16,606 15,810
--------- ---------
Operating income 5,106 4,828
Other (income) expense:
Interest expense 1,675 2,019
Investment income (153) (84)
Other, net 13 313
--------- ---------
1,535 2,248
--------- ---------
Income before income taxes 3,571 2,580
Income taxes 1,070 772
--------- ---------
Net income $ 2,501 $ 1,808
========= =========
Net income per share - basic:
Net income per share $ 0.17 $ 0.15
========= =========
Average shares outstanding 14,490 11,984
========= =========
Net income per share - diluted:
Net income per share $ 0.17 $ 0.15
========= =========
Average shares outstanding 14,981 12,228
========= =========
Dividends per common share $ 0.04 $ 0.04
========= =========
See notes to consolidated condensed financial statements.
(4)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)(unaudited)
Three Months Ended
August 31
------------------------
1998 1997
--------- ---------
Operating Activities:
Net income $ 2,501 $ 1,808
Non-cash charges to income:
Depreciation 864 656
Amortization of intangibles
and financing costs 155 120
Deferred income taxes 1,070 470
Contribution to employee stock
ownership plan 485 285
--------- ---------
Total non-cash charges 2,574 1,531
--------- ---------
Changes in working capital, net of effects
of currency translation:
Accounts receivable 3,241 527
Inventories (7,526) 883
Other current assets (463) 760
Accounts payable 982 1,896
Other liabilities (3,471) (169)
--------- ---------
Net changes in working capital (7,237) 3,897
--------- ---------
Net cash provided by (used in)
operating activities (2,162) 7,236
--------- ---------
Financing Activities:
Proceeds from borrowings 7,541 6,486
Payments on debt (319) (4,000)
Proceeds from stock 112 --
Cash dividends (568) (467)
--------- ---------
Net cash provided by financing activities 6,766 2,019
--------- ---------
Investing Activities:
Sales of investments 746 890
Purchase of investments (767) (1,085)
Business acquisitions (690) (6,262)
Capital expenditures (1,344) (907)
Other (1,428) (562)
--------- ---------
Net cash used in investing activities (3,483) (7,926)
--------- ---------
Increase in cash and equivalents 1,121 1,329
Cash and equivalents at beginning of year 8,031 10,012
--------- ---------
Cash and equivalents at end of period $ 9,152 $ 11,341
========= =========
See notes to consolidated condensed financial statements.
(5)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Months Ended August 31, 1998
(Unaudited)
Note A -- Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements
(Statements) have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q. In the opinion of management, all adjustments necessary for a fair
presentation of the results of operations for the periods covered have been
reflected in the Statements. Certain information and footnotes necessary for a
fair presentation of the financial position and results of operations in
conformity with generally accepted accounting principles have been omitted in
accordance with the aforementioned instructions. It is suggested that the
Statements be read in conjunction with the Financial Statements and Notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
May 31, 1998.
The marketing and sales operations of the Company are organized in four
strategic business units (SBUs): Electronic Device Group (EDG), Solid State and
Components (SSC), Display Products Group (DPG) and Security Systems Division
(SSD). References hereinafter are to the acronyms noted parenthetically.
Note B -- Income Taxes
The income tax provisions for the three-month periods ended August 31, 1998 and
August 31, 1997 are based on the estimated annual effective tax rate of 30%.
The effective rate is less than the statutory rate of 34% due to U.S. foreign
sales corporation tax benefits, partially offset by expected state income
taxes.
(6)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Months Ended August 31, 1998
(Unaudited)
Note C - Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", requires the presentation of comprehensive income as follows (in
thousands).
Three Months Ended
August 31,
1998 1997
-------- --------
Net Income $ 2,501 $ 1,808
Foreign currency translation & other (1,425) (1,532)
-------- --------
Comprehensive income $ 1,076 $ 276
======== ========
(7)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended August 31, 1998
(Unaudited)
Results of Operations
Net sales for the first quarter of fiscal 1999 were $76.0 million, up 6.2% from
last year's first quarter of $71.6 million. Sales, percentage change from the
prior year, gross margins and gross margin percent of sales by SBU are
summarized in the following table. Gross margins for each SBU include
provisions for returns and overstock. Provisions for LIFO, manufacturing
charges and other costs are included under the caption "Corporate" (in
thousands).
Sales Gross Margin
------------------------- ----------------------------------
1999 1998 % 1999 GM% 1998 GM%
-------- -------- ---- -------- ----- -------- -----
EDG $ 28,628 $ 29,025 -1% $ 8,951 31.3% $ 9,222 31.8%
SSC 22,182 20,560 8% 6,137 27.7% 6,162 30.0%
DPG 9,191 7,642 20% 3,022 32.9% 2,447 32.0%
SSD 16,037 14,373 12% 3,793 23.7% 3,350 23.3%
Corporate - - (191) (543)
-------- -------- ---- -------- ----- -------- -----
Total $ 76,038 $ 71,600 6% $ 21,712 28.6% $ 20,638 28.8%
======== ======== ======== ========
EDG sales declined 1% from fiscal 1998 levels. Gross margins as a percent of
sales decreased to 31.3% in fiscal 1999 from 31.8% in fiscal 1998 due to
changes in product mix, as sales shifted from higher-margin industrial and
microwave products toward lower-margin medical products.
Sales for SSC increased 8% from fiscal 1998 levels, reflecting an increase in
wireless product sales. Gross margins as a percent of sales decreased to 27.7%
in fiscal 1999 from 30.0% in fiscal 1998 due to changes in product mix and
increasing competitive pressures, primarily for RF products.
Sales for DPG increased 20% in fiscal 1999 from 1988 levels, primarily due to
new initiatives in monitor sales and related systems integration revenues.
Gross margins as a percent of sales increased to 32.9% in fiscal 1999 from
32.0% in fiscal 1998.
SSD sales increased 12% primarily due to the acquisition of Security Service
Corporation, Inc. (SSI), a Canadian distributor of security systems with annual
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended August 31, 1998
(Unaudited)
sales of $20.0 million on August 14, 1997. Gross margins as a percent of sales
increased from 23.3% in fiscal 1998 to 23.7% in fiscal 1999, reflecting higher
margins on acquired product lines.
On a geographic basis, the Company achieved sales growth of 13% in North
America, reflecting internal growth and the acquisition of SSI near the end of
the first quarter last year. The global economic slowdown affected sales in
Asia / Pacific, which declined by 21%, and in Latin America, where sales
slipped by 8%. Sales, percentage change from the prior year, gross margins and
gross margin percent of sales by area are summarized in the following table.
The caption, "other", includes sales to export distributors and to countries
where the Company does not have offices, including Eastern Europe and the
Middle East. Provisions for LIFO, manufacturing charges and other costs are
included under the caption "Corporate" (in thousands).
Sales Gross Margin
------------------------- ----------------------------------
1999 1998 % 1999 GM% 1998 GM%
-------- -------- ---- -------- ----- -------- -----
North America $ 49,558 $ 43,664 13% $ 13,726 27.7% $ 12,789 29.3%
Europe 15,188 14,726 3% 4,921 32.4% 4,459 30.3%
Latin America 4,363 4,734 -8% 1,205 27.6% 1,308 27.6%
Asia/Pacific 4,601 5,821 -21% 1,346 29.3% 1,810 31.1%
Other 2,328 2,655 -12% 705 30.3% 815 30.7%
Corporate - - (191) (543)
-------- -------- ---- -------- ----- -------- -----
Total $ 76,038 $ 71,600 6% $ 21,712 28.6% $ 20,638 28.8%
======== ======== ======== ========
Overall gross margins for the first quarter were 28.6%, compared to 28.8% in
the prior year. Gross margin comparisons were most significantly affected by
changes in product mix, particularly SSD's larger contribution to total sales.
Selling, general and administrative expenses, as a percent of sales, were
reduced to 21.8 percent in 1999 compared to 22.1 percent in the prior year
first quarter. Net results also benefited from lower non-operating expenses,
primarily interest costs, as debt levels were reduced by the proceeds from the
Company's common stock offering in the fourth quarter of fiscal 1998.
(9)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended August 31, 1998
(Unaudited)
Net income for the quarter was $2.5 million or $.17 per share, compared to $1.8
million or $.15 per share in the prior year.
Liquidity and Capital Resources
Cash used in operations was $2.2 million in the first quarter of fiscal 1999,
compared to $7.2 million cash provided by operations in the first quarter last
year. Although cash provided by net income and non-cash adjustments improved,
the Company increased its investment in working capital by $7.2 million in the
first quarter of fiscal 1999, compared to a $3.9 million reduction last year.
Accounts receivable decreased $3.2 million in 1999 and $.5 million in 1998.
Inventory increased $7.5 million in 1999, primarily for product line expansion,
compared to a reduction of $883,000 in 1998. Capital expenditures and dividend
payments were funded primarily by cash generated by operations and additional
borrowings. Interest payments for the first quarter were $2.8 million in fiscal
1999 and $3.2 million in 1998.
The Company's loan agreements contain various financial and operating covenants
which set benchmark levels for tangible net worth, debt / tangible net worth
ratio and annual debt service coverage. The Company was in compliance with
these covenants at August 31, 1998.
Cash reserves, investments, funds from operations and credit lines are expected
to be adequate to meet the operational needs and future dividends of the
Company. The policy regarding payment of dividends is reviewed periodically by
the Board of Directors in light of the Company's operating needs and capital
structure.
Impact of Year 2000
The year 2000 issue is the result of computer programs which are written using
two digits rather than four to define the applicable year. The Company's
current computer database correctly stores date stamps which include four digit
years. The Company sets standard configuration guidelines for personal computer
systems used within the Company which are year 2000 compliant. Based on a
recent
(10)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended August 31, 1998
(Unaudited)
assessment, the Company anticipates its systems will function properly with
respect to dates in the year 2000 and thereafter.
Future operating results may also be affected by the readiness of the Company's
trading partners to meet year 2000 requirements. The Company is in the process
of surveying its vendors of products with embedded chips or date-sensitive
systems concerning their year 2000 readiness. The use of electronic data
interchanges by the Company is limited to a few vendors and customers and the
Company does not anticipate significant year 2000 issues relating to interface
systems with these parties. The Company has no single customer which accounts
for more than 2% of its sales or vendor which accounts for more than 9% of its
purchases. Based upon the foregoing, the Company believes that its risk of
significant financial impact resulting from the inability of its trading
partners to meet year 2000 requirements is minimal.
Euro Currency Conversion
On January 1, 1999, eleven member states of the European Union will begin
conversion to a common currency, the euro. From January 1, 1999 until January
1, 2002, companies operating in Europe must be able to process business
transactions either in legacy currencies or in euros. After January 1, 2001,
all transactions will be processed only in euros. These changes could have
significant impacts on transaction processing costs, pricing policies and
foreign currency exchange risk management.
The Company has verified that its transaction processing systems can
accommodate the euro currency and dual currency processing requirements without
significant additional costs. While the exact impact on pricing is impossible
to ascertain, the Company believes that most of its pricing is based on U.S.
dollar costs and the effect of conversion to the Euro will not be significant.
The Company expects to adopt the euro as the functional currency for each of
its subsidiaries within the European Union. While it is possible that this
change may result in reduced volatility of foreign exchange results and lower
foreign exchange risk management costs, these benefits can not be quantified at
this time.
(11)
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred in the matters reported
Under the category "Legal Proceedings" in the Registrant's
Report on Form 10-K for the fiscal year ended May 31, 1998,
except that Arius has filed a notice of appeal with respect
to the order of July 14, 1998 denying its motion to penalize
the Company for having made sales to alleged Arius customers
subsequent to the date Arius filed its bankruptcy petition.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held October 6, 1998,
the management slate of directors ran unopposed and was
elected. The Company's 1998 Incentive Compensation Plan
was approved as proposed in the proxy statement dated
September 3, 1998 to announce the meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule - page 12.
(b) Reports on Form 8-K - None
(12)
PART II - OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHARDSON ELECTRONICS, LTD.
Date October 8 , 1998 By /s/
William J. Garry
Senior Vice President and
Chief Financial Officer
(13)
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